Protectionism Sweeps Over H-1Bs as Recruiters Sort Out Stimulus Regulations

Harvard Business School’s Class of 2010 will send 900 new MBAs out into the job market, but one-third who are non-U.S. citizens will be effectively off limits for recruiters from Bank of America, JPMorgan Chase and Goldman Sachs.

All three companies recruit on Harvard’s campus but now fall under new restrictions on H-1B visas, the primary vehicle for hiring foreign students graduating from U.S. universities. The new H-1B restrictions, which are part of the American Recovery and Reinvestment Act of 2009 signed into law on February 17, apply to any company receiving Troubled Assets Relief Program funds.

If Citigroup, for instance, wants to hire Stanford University’s top Ph.D. computer science graduate and that graduate happens to be an Indian nonresident, Citigroup’s recruiters will find that their hands are tied because the company is covered under the new law.

Still, Harvard’s 297 non-U.S. citizen MBAs likely will find work elsewhere; so will the 274 non-U.S. citizen MBA graduates from MIT’s Sloan School and the 320 non-U.S. citizen graduates from the University of Pennsylvania’s Wharton School—40 percent of its MBA class. The foreign companies that routinely recruit at the top U.S. business schools will welcome these MBAs, while some of the largest and best-known U.S. companies will lose their first-choice candidates to overseas competitors.

"Most employers receiving federal funds will not take the risk of filing H-1B petitions because the new requirements are almost impossible to comply with," says Jim Alexander, managing partner at Maggio & Kattar, an immigration law firm based in Washington.

The jobs filled by H-1B visa candidates each year represent less than one-twentieth of 1 percent of total U.S. employment, but were singled out for special protection under the $787 billion stimulus act. In fact, the congressional debates about this minuscule number of jobs unleashed a wave of anti-immigrant sentiment that could threaten the entire H-1B category and deter the most talented students and workers worldwide from looking for or accepting employment in the United States.

The anti-immigrant wave has been duly noted by the mainstream and business press in India, which closely tracked the passage of the H-1B visa restrictions, warning readers that fewer U.S. firms would be able to recruit Indian science, engineering and computer specialists for work in the United States.

H-1B visa holders at U.S. companies blogged about the anti-immigrant sentiments that fueled the restrictions and the insults they routinely endure from those who view H-1B visa workers as "underpaid" and "subservient." With companies relying on global talent pools to fuel growth, some anti-immigrant forces have created a poisonous atmosphere for recruiting.

"With the H-1B restrictions in play, some jobs will go unfilled, some will be filled with lesser candidates, and more U.S. companies will move work overseas," says Ted Ruthizer, partner and business immigration co-chair at Kramer Levin Naftalis & Frankel in New York and a lecturer at Columbia Law School.

‘Dependent’ company restrictionsThe current cap on the number of H-1B visas granted each year is 65,000, which includes 5,400 set aside for candidates from Singapore and 1,400 for candidates from Chile. An additional 20,000 H-1B visas are available for advanced-degree students graduating from U.S. universities.

The new H-1B restrictions contained in the stimulus act require any company that receives money under TARP to comply with onerous rules that previously applied only to "H-1B dependent" companies, defined as those with 15 percent or more of their workers on H-1B visas.

Under the new stimulus act restrictions, the 15 percent threshold does not apply to TARP recipients. Any company that receives federal funds and petitions for even one H-1B visa is now covered by the dependent employer rules.

Those rules require employers to make various attestations about their recruiting, hiring and layoff practices. A no-displacement attestation requires the employer to state that it has not and will not lay off a U.S. worker in a similar position within 90 days before or after filing an H-1B petition.

"In addition to the required attestation that there have been no layoffs in similar positions, the employer must retain paperwork on any employee in a similar position who left the company for any reason, including voluntary quits and those fired for cause," Alexander says.

The new no-displacement requirement means a company that laid off employees in January, before the restrictive provisions were added to the stimulus bill, is essentially barred from filing H-1B petitions in the current round, which begins April 1.

If the employer places an H-1B worker at a customer site, the employer must attest that the customer has not laid off a U.S. worker in a similar position within 90 days before or after the date of the placement.

"This means that the employer must be aware of any layoffs at the customer’s site and must basically micromanage the customer’s labor activities—not the best scenario for positive business relations," says Angelo Paparelli, business immigration partner at Seyfarth Shaw, who maintains a bicoastal practice in Irvine, California, and New York.

The new restrictions also require any employer receiving federal funds to make a recruitment attestation that it has made a "good faith" effort to recruit a U.S. worker for the position to be filled by the H-1B candidate. The recruiting effort must meet industry standards, including standards for posting and advertising the job, and must include salary offers that are as high or higher than the salary offered to the H-1B candidate.

The new restrictions also eliminate two important exemptions from the original dependent rules. The original rules include exemptions for jobs paying at least $60,000 a year in cash compensation and for jobs that require a master’s degree or higher in a specialty related to the intended employment and generally accepted by the industry as a necessary credential for the job. These two exemptions cover many H-1B positions, but are not allowed for employers receiving federal funds.

"The dependent employer provisions add a cost of compliance in an already financially stressed business environment," Paparelli notes. "The attempt is to add additional costs and hardships for employers."

Employment decision consequencesAnti-immigrant advocates continue to claim that employers can adequately fill all H-1B jobs with available U.S. citizen employees. For years, this claim has been undercut by labor market studies and extensive data on university enrollments. Additional studies have documented the central role of immigrant talent in U.S. startup companies, patent filings, technological advancement and job creation.

Deep, long-term shortcomings in the U.S. education system have left the country dependent on foreign-born scientists, engineers, computer specialists and other highly skilled workers to fuel the research and innovation that drive economic growth.

"H-1B visa costs average $10,000 per candidate in government fees and attorney costs, and employers would certainly avoid these costs if they could," Ruthizer says.

Experts agree that solving the outright labor shortage for some jobs and addressing the acute mismatch in skills for others will require substantial reforms in U.S. secondary schools, the university system and training programs.

The U.S. companies that are heavy users of H-1B visas have poured billions of dollars into trying to improve the supply of qualified U.S. workers. The Bill and Melinda Gates Foundation, funded by the sale of Microsoft stock, has invested more than $2 billion to improve U.S. secondary education, with a focus on science and technology, plus an additional $1.7 billion for college scholarship programs.

Intel, Oracle and other H-1B users have pumped billions more into the U.S. education system. In addition, by law, $1,500 of the fee that employers pay for every H-1B petition goes to scholarships and training programs reserved for U.S. students.

In recent months, anti-immigration forces in Congress have seized on the very limited cases of H-1B fraud as a vehicle for reducing or banning H-1Bs.

"Congress buys the idea that these employees are brought in to work for lower wages," Paparelli says. "That’s a false perception.

"The vast majority of employers using these visas are law-abiding employers who incur high fees and costs and additional risks and subject themselves to criminal liability because they need these workers and cannot find suitable employee here."

Employers have worked for years to increase the cap for H-1B visas from its current level, which experts agree is inadequate. The new H-1B restrictions signal a serious setback for this goal and for the broader call to let labor markets and business needs drive recruiting decisions.

"Cap removal will now be an uphill battle," Ruthizer says.

"We’ve heard discussions about applying labor certification requirements for all H-1B visas," Alexander says. "That would greatly reduce the number of H-1Bs."

The Department of Labor certification process now entails long waits for a review with additional delays stretching into years if there are any questions. "By that time, the business opportunity has evaporated," Alexander says.

The new H-1B restrictions will remain in effect for two years.

"Employers need to make sure that they are in contact with their congressional delegation and that Congress understands that limitations on foreign workers will simply mean that more jobs will be moved offshore, for example, to Canada, where the immigration restrictions are not as tight," Alexander says.